Perseus Mining Ltd’s (ASX:PRU) long term growth aspiration of producing +500,000 ounces of gold per annum is firming up with Yaouré’s development ahead of schedule and a new underground planned at Edikan.
The company produced 134,980 ounces of gold in the December half at a weighted average all-in sustaining cost (AISC) of US$942 per ounce.
Perseus posted a 193% increase in net profit after tax to $30.4 million and a 43% increase in EBITDA from operations to $123.9 million.
Macquarie Research has maintained its outperform recommendation for Perseus and raised the 12-month price target by 17% to $1.40.
Following is an extract from Macquarie’s research update:
Event
- PRU’s result was strong with better-than0expected operating costs. Edikan’s reserves grew 16% with PRU noting that the Esuajah South underground reserve will be included in the upcoming LOM plan.
Impact
- NPAT beat on lower costs: Revenue of A$274m in 1HFY20 was in line with our expectations. Operating costs were 18% (A$33m) better than estimated which included A$17.4m in unexpected inventory write-backs. The reduced costs flowed through to a reported NPAT beat of A$31m. Underlying NPAT (stripping out write-downs, write-backs and FX gains) was A$5.5m stronger.
- Edikan underground on the way: Edikan’s updated reserves lifted 16% from the mid-CY19 estimate and now total 46Mt at 1.1g/t for 1.6Moz. PRU notes increasing confidence in the Esuajah South UG reserve and will include the underground operation in Edikan’s upcoming LOM plan. We have included a nominal underground scenario into our Edikan base case which extends mine life by 1.5 years and boosts PRU’s group production to +500koz in FY23.
Earnings and target price revision
- The stronger 1H NPAT result sees our FY20 EPS expectation more than double (+122%) in a very sensitive year. We raise our EPS estimates 6-8% from FY22-FY24 with the addition of an underground operation at Edikan to our base case. The improved earnings outlook, Edikan's mine life extension and rolling forward our valuation lift our TP 17% to A$1.40/sh.
Price catalyst
- 12-month price target: A$1.40 based on a 50:50 blend 1.0x NAV, 7.0x CFPS methodology.
- Catalyst: PRU will provide an updated LOM plan for Edikan before the end of 3QFY20 while Yaouré coming online by CY20-end remains important.
Action and recommendation
- Maintain Outperform. A stronger-than-expected NPAT result driven by lower operating costs that were assisted by inventory write-backs. While Edikan’s reserve increased 16%, PRU’s confidence in the Esuajah South underground reserve is important and will result in the project being included in the upcoming LOM plan. In the short term, we are expecting a grade driven production step-up for PRU in 2HFY20. More importantly, PRU’s longer-term growth aspiration of producing +500kozpa is firming up with Yaouré’s development ahead of schedule and a new underground planned at Edikan.